Jeffrey Gundlach, CEO of Double Line Capital and the "new bond king", said recently that investors should consider buying long-term US treasury bond bonds, because a series of economic factors under consideration may soon trigger a rebound in long-term bond prices. He predicts that the US economy will enter a recession in the first half of next year.
"We like to take long-term treasury bond as a short-term deal to deal with economic recession. The downward trend of the yield of 30-year treasury bond in the past 40 years has been completely reversed, and it has soared nearly 400 basis points in less than two years," Gunlake wrote in his report on Wednesday. The price of long-term bonds has fallen by about 50%, which means there is a possibility of an increase now
Gunlac's economic recession forecast comes from the Leading Economic Index in the United States, which has long pointed to an impending recession. At the same time, the unemployment rate will exceed the 12 month moving average, which Gunlak pointed out, usually indicates that the economy is about to slow down.
Gunrak believes that one of the reasons why the long-term bond yield jumped to 5% is that the tax payment delay in 2022 led to the massive issuance of US treasury bond bonds. But all this - along with the COVID-19 stimulus and the moratorium on loan repayments - will end.
As debt and tax breaks end, consumers will have to slow down their way of life. This may be beneficial for the bond market as we will not have as much net supply and may have a negative impact on the economy, leading to a rebound in bond prices in the next six months, "Gunlak wrote.
On Wednesday, US long-term treasury bond bond yields hit a 16 year high. The yield of 10-year US treasury bond bonds rose to 4.902%, the highest closing level since July 2007. The yield of 30-year US treasury bond bonds also exceeded 5%.
Mortgage backed securities are attractive
As he warned of the impending economic recession, Gonlac also touted institutional mortgage-backed securities and commercial mortgage-backed bonds as attractive investments.
Given the current high interest rates, the refinancing risk of previously issued mortgage loans is relatively low. From a valuation perspective, this asset class is also cheaper than corporate bonds and provides the highest interest rate spread in many years.
In terms of CMBS (Commercial Real Estate Mortgage Backed Securities), although many people warn that a commercial real estate crash is imminent, Gonlac said that investors should stick to buying AAA rated commercial mortgage bonds, which have higher credit ratings and spreads than investment grade corporate bonds.